BankAtlantic says it sues analyst over research

JoyceKoh

(Updated to correct the date of Ladenburg Thalmann's report.)

NEW YORK (MarketWatch) -- BankAtlantic said Monday that it filed a lawsuit alleging that Richard Bove, a veteran equity analyst, and his firm Ladenburg Thalmann, defamed the company in a recent research note examining which banks are likely to fail.

BankAtlantic said the suit was filed in a state court in Broward County, Fla., where its headquarters is located in Fort Lauderdale. A copy of the suit wasn't available on the court's Website. A company spokeswoman said she couldn't provide a copy of the suit and referred an inquiry to the company's lawyer, who wasn't available Monday night.

In the note titled, "Who is Next?" dated July 13, Bove wrote about the next possible failure after IndyMac, the California thrift that federal regulators seized earlier this month. The research looked at the selected ratios for the 107 U.S. banks and thrifts with assets greater than $5 billion.

In a press release announcing the lawsuit, BankAtlantic's
BBX, +1.48%
chairman, Alan Levan, claimed that Bove only examined data from the bank's parent company, BankAtlantic Bancorp, which Levan claimed is "meaningless information" in the bank's case.

Bove suggested two ways to assess the probability: calculating the ratio of nonperforming assets against outstanding loans, and the ratio of nonperforming assets against reserves plus common equity. A ratio of above 5% for the first ratio and above 40% for the second suggests the company is in the danger zone, according to Bove.

Bove ranked BankAtlantic in 10th place with a ratio of 4.40% on the first ratio and 12th place with a ratio of 38.4% on the second method. IndyMac was ranked 4th and 1st respectively, with ratios of 10.51% and 146.2%.

Bove concluded in his report that the banking sector is "not anywhere near the danger" seen nearly two decades ago. Looking at the period from 1984 to 2008, he claimed that present-day ratios were a fraction of the levels during the early 1990s, in the aftermath of the S&L crisis.

BankAtlantic disputes findings

In the press release, Levan claimed Bove's report failed to examine the health of the banks and thrifts. Instead, Bove took data provided by a research firm on bank and thrift holding companies, and used the holding company data to represent the subsidiaries' financial conditions, Levan claimed.

In BankAtlantic's case, Levan said the financial statements of its two holding companies - BankAtlantic Bancorp and BFC Financial Corp. -- do not mirror its banking subsidiary.

BankAtlantic, the chairman asserted Monday, is well capitalized. By the bank's calculations as of March 31, he said the company has a ratio of nonperforming loans to total loans of 1.25%, and a ratio of nonperforming loans to its capital and reserves of 12.5%.

Bove's July 13 report contained a warning: "As always while the numbers come from sources believed to be reliable, we do not guarantee their accuracy."

On July 15, a day after the report was widely reported, Bove issued a note explaining the methodology underlying his report. He said he used data from SNL Financial, a financial information and research firm.

"The words danger zone were used because it is recognized that companies with positive cash flows can many times survive in the danger zone for long periods and then recover," he also wrote

Shares of BankAtlantic
BBX, +1.48%
which have lost more than 70% over the past year, closed Monday up 21 cents at $1.89.

Commenting on the lawsuit, John Coffee, a professor of law at Columbia University, said there is a higher standard of proof for public institutions like BankAtlantic, which have to show the defendant was recklessly indifferent to the truth.

"For example, credit-rating agencies have been sued a number of times, but no one has yet recovered a judgment against them," he said. "Oftentimes, these lawsuits are brought more for leverage, to get the defendant to make an apology which is less costly than having to defend a lawsuit."

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